CALIFORNIA PUBLIC UTILITIES COMMISSION, PETITIONER V. FEDERAL
ENERGY REGULATORY COMMISSION AND BONNEVILLE POWER ADMINISTRATION
No. 90-505
In The Supreme Court Of The United States
October Term, 1990
On Petition For A Writ Of Certiorari To The United States Court Of
Appeals For The Ninth Circuit
Brief For The Respondents In Opposition
TABLE OF CONTENTS
Question Presented
Opinions below
Jurisdiction
Statement
Argument
Conclusion
OPINIONS BELOW
The opinion of the court of appeals (Pet. App. A1-A34) is reported
at 903 F.2d 585. The orders of the Federal Energy Regulatory
Commission (Pet. App. C1-C41, D1-D9) are reported at 36 Fed. Energy
Reg. Comm'n Rep. (CCH) Paragraph 61,335 and 39 Fed. Energy Reg. Comm'n
Rep. (CCH) Paragraph 61,033.
JURISDICTION
The judgment of the court of appeals was entered on December 11,
1989. Petitions for rehearing were denied on June 21, 1990. Pet.
App. B1-B2. The petition for a writ of certiorari was filed on
September 19, 1990. The jurisdiction of this Court is invoked under
28 U.S.C. 1254(1).
QUESTIONS PRESENTED
1. Whether the Federal Energy Regulatory Commission (FERC) is
authorized by Section 7(k) of the Pacific Northwest Electric Power
Planning and Conservation Act to hold an evidentiary hearing for the
purposes of supplementing the record in connection with its review of
nonfirm rates established by the Bonneville Power Administration
(BPA).
2. Whether FERC's orders approving nonfirm rates set by BPA were
supported by substantial evidence.
STATEMENT
1. The Bonneville Power Administration (BPA) is a self-financing
agency within the United States Department of Energy. BPA markets
power from thirty federal hydroelectric projects and two nuclear power
plants known collectively as the Federal Columbia River Power System.
BPA also purchases power and carries out energy conservation programs.
The Columbia River System includes a network of dams and reservoirs
capable of storing approximately 40% of the average annual streamflow
of the Columbia River. Despite this large storage capacity, BPA lacks
sufficient water to operate its hydroelectric generating facilities at
full capacity throughout the year. BPA plans to meet its "firm power"
loads on the assumption that streamflows will equal the lowest flows
on record. United States Dep't of Energy -- Bonneville Power Admin.,
29 Fed. Energy Reg. Comm'n Rep. (CCH) Paragraph 63,039, at 65,123
(1984). /1/ As a result of this conservative assumption, the Columbia
River System produces very large amounts of nonfirm energy in four out
of every five years. Ibid. BPA operates the system so as to maximize
the production of useful energy. Pet. App. C6-C7.
BPA's reservoirs integrate its hydroelectric and thermal generating
capacity. By operating its thermal generators (or by purchasing power
from other sources), BPA is able to accumulate water in its reservoirs
that can be used to generate electricity at a later time.
Consequently, energy produced by water released from a reservoir of
the Columbia River System may result from the expenditure of thermal
resources, streamflows, or a combination of the two. Because the
system relies heavily on hydroelectric generation, and because it
stores large amounts of potential energy by expending thermal and
purchased resources (as well as through conservation programs), it is
not feasible for BPA to attribute an increment of nonfirm energy to
the resource that produced it. Consequently, it is not feasible for
BPA to ascertain the incremental cost of a unit of energy. BPA can,
however, determine the total cost of producing a quantity of energy
over time and derive an average cost per unit from this figure. Pet.
App. C7-C8.
2. In 1964 Congress enacted the Pacific Northwest Consumer Power
Preference Act, 16 U.S.C. 837 et seq., which prohibits the sale of
electric energy from federal hydroelectric facilities in the Columbia
River System to customers outside the Pacific Northwest region unless
there is no market for the power in the Pacific Northwest at the
established rate. In 1980, Congress enacted the Pacific Northwest
Electric Power Planning and Conservation Act (the Regional Act), which
among other things authorizes the Administrator of BPA to sell surplus
firm and nonfirm power pursuant to the preference provisions of the
1964 Act, 16 U.S.C. 839c(f), 839f(c), and requires BPA to establish
rates sufficient to cover BPA's costs. /2/ Section 7(k) of the
Regional Act authorizes FERC to review BPA's nonfirm rates applicable
to customers outside the Pacific Northwest region to determine whether
the rates comply with the standards of the Federal Columbia River
Transmission System Act, 16 U.S.C. 838g-h, the Flood Control Act of
1944, 16 U.S.C. 825s, and the Bonneville Project Act of 1937, 16
U.S.C. 832e-f. /3/
3. This case involves two nonfirm rates, known as NF-1 and NF-2,
established by the Administrator of BPA under Section 7(k) of the
Regional Act for sales of nonfirm energy from July 1981 through
October 1983. Pet. App. A9. The NF-1 and NF-2 rates applied to
nonfirm customers in the Pacific Northwest region as well as to
customers located outside that region. The rates were challenged by a
group of Pacific Northwest customers, who contended that they were too
low, and also by a group of California customers and regulators, who
contended that the rates were too high.
4. Before FERC, BPA and other parties took the position that
Section 7(k) requires FERC to base its review solely on the
administrative record compiled by BPA. Pet. App. A21-A22 & n.9. FERC
nevertheless instructed an administrative law judge to conduct an
evidentiary hearing to supplement the record compiled by BPA. In
November 1984, following a hearing, the ALJ issued an initial decision
concluding that the NF-1 and NF-2 rates resulted in undercharges to
California customers and disapproving the rates. United States Dept.
of Energy -- Bonneville Power Admin., 29 Fed. Energy Reg. Comm'n Rep.
(CCH) Paragraph 63,039 (1984).
In September 1986, FERC issued an opinion rejecting the ALJ's
conclusions and approving the rates as filed by BPA. Pet. App.
C1-C41. FERC found that the NF-1 and NF-2 rates met the standards
established by the statutes enumerated in Section 7(k) of the Regional
Act. /4/ Pet. App. C33-C36. As to the contention of the Pacific
Northwest customers that BPA's rates for sales to California were too
low because they resulted in below-cost sales, FERC explained that
"(i)f the market for energy does not ultimately turn out to be what
BPA had expected at the time it was storing energy in its reservoirs,
it may be necessary for BPA to lower its price below what it cost to
produce the stored energy * * * rather than to have it be wasted
through spill." Pet. App. C36. FERC also rejected arguments by the
California parties that the rates for sales to California were too
high. The California parties contended that BPA's nonfirm rate should
have been derived from BPA's incremental cost (i.e., the cost of
producing an additional unit of energy) rather than from an unweighted
proportionate share of BPA's full costs. FERC found that there was no
feasible way for BPA to design the rates to reflect incremental cost.
Because BPA's power is produced from a mix of hydroelectric and
thermal sources, the incremental cost of production cannot be
determined. Pet. App. C7-C8. FERC reaffirmed its conclusions in an
opinion denying petitions for rehearing. Pet. App. D1-D9.
5. On appeal, the court of appeals concluded that FERC lacked
authority to hold an evidentiary hearing to supplement the record, but
affirmed FERC's decision on the merits. The court rejected FERC's
contention that the agency is authorized under Section 7(k) of the
Regional Act to conduct an evidentiary hearing if it determines that
the record compiled by BPA is inadequate. The court concluded that
FERC's position is inconsistent with other provisions of the Regional
Act that require BPA to develop "a full and complete record" (16
U.S.C. 839e (i)(2)) and to come to a final decision based on that
record (16 U.S.C. 839e(i)(5)); that require FERC to base its review
and approval on the record compiled by BPA (16 U.S.C. 839e(k)); and
that require the court of appeals to base its review on the record
compiled by BPA (16 U.S.C. 839f(e)(2)). Pet. App. A19, A22-A23. The
court noted that it was deciding "only that FERC may not hold an
evidentiary hearing to supplement a record it thinks is inadequate."
It expressly left open the possibility that "other circumstances"
might permit FERC to hold an evidentiary hearing. Id. at A23.
The court of appeals then held that FERC's confirmation of the NF-1
and NF-2 rates was supported by substantial evidence in the record
compiled before BPA. The court upheld FERC's finding that it is not
feasible to determine the incremental cost of nonfirm energy produced
by the Columbia River System. Pet. App. A24-A25. Accordingly, the
court rejected the California parties' contention that the nonfirm
rates should have been designed on an incremental basis rather than on
an unweighted proportional basis. The court also rejected the
Northwest parties' contention that the rates were too low since they
did not fully recover BPA's costs. The court agreed with FERC that
BPA's decision to cap the rates at cost, while allowing sales below
cost in circumstances where the energy might otherwise be wasted,
satisfied the statutory requirement that BPA encourage widespread use
of BPA power at the lowest possible rates consistent with sound
business principles. Pet. App. A30-A33. The court emphasized that
the Regional Act does not require BPA to design rates in any
particular way, and concluded that the NF-1 and NF-2 rates met the
standards of Section 7(k). Pet. App. A30-A33.
ARGUMENT
The court of appeals reasonably concluded that FERC lacks authority
under Section 7(k) of the Regional Act to conduct an evidentiary
hearing for the purpose of supplementing the record compiled before
BPA. Because FERC has now acquiesced in the court of appeals' narrow
resolution of this issue, further review is not warranted. In
addition, the court of appeals' fact-bound decision affirming the NF-1
and NF-2 rates does not merit review by this Court. /5/
1. Petitioner contends (Pet. 9-13) that FERC is authorized under
Section 7(k) of the Regional Act to hold an evidentiary hearing as
part of its review of rates set by BPA. This contention does not
warrant further review -- especially in light of the fact that FERC
ruled against petitioner on the basis of the record as supplemented by
the evidentiary hearing FERC in fact held.
In any event, following the decision of the court of appeals in
this case, FERC decided to acquiesce in the court's resolution of this
issue. In a recent decision, FERC stated that
In Aluminum Company of America v. Bonneville Power
Administration, 903 F.2d 585, 591-94 (9th Cir. 1990), the Ninth
Circuit held that the Commission may not hold an evidentiary
hearing under section 7(k) to supplement a record we think is
inadequate. The court did not completely foreclose the
possibility that an evidentiary hearing could be held under
other circumstances. Id. at 594. However, since the Commission
agrees with the Ninth Circuit's decision, we do not anticipate
evidentiary hearings in future section 7(k) proceedings.
United States Department of Energy -- Bonneville Power Administration,
Docket No. 87-2011-005 (Nov. 14, 1990) slip op. 10 n.28. /6/ Thus,
FERC and BPA now agree with the regional court of appeals -- which has
exclusive jurisdiction to review questions arising under Section 7(k),
16 U.S.C. 839f(e)(5) -- that FERC is not authorized to hold an
evidentiary hearing for the purpose of supplementing the record under
Section 7(k). Because the issue is unlikely to arise in future cases,
it does not merit the attention of this Court.
Petitioner contends that the court of appeals failed to accord
sufficient deference to FERC's (former) interpretation of Section
7(k). But BPA -- the agency that drafted the Regional Act --
consistently has taken the position that FERC is not authorized to
conduct an evidentiary hearing to supplement BPA's record. This Court
has recognized that "the (BPA) Administrator's interpretation of the
Regional Act is to be given great weight." Aluminum Co. of America v.
Central Lincoln Peoples' Utility District, 467 U.S. 380, 389 (1984).
It is true that FERC's recent decision to adopt BPA's view, to the
extent that it conflicts with its earlier interpretation, may be
entitled to less deference than a consistently held agency view. See
INS v. Cardoza-Fonseca, 480 U.S. 421, 446-447 n.30 (1987) (quoting
Watt v. Alaska, 451 U.S. 259, 273 (1981)). But FERC's change of
position is not as dramatic as it might appear to be. Before this
case reached the court of appeals, FERC recognized that "(t)here may
be merit to BPA's argument that * * * an additional hearing need not
be an evidentiary hearing and that the mandate of (Section 7(k)) may
be fulfilled, instead, by providing the parties with the opportunity
to file briefs or written comments." 23 Fed. Energy Reg. Comm'n Rep.
(CCH) Paragraph 61,469, at 62,024.
The court of appeals' resolution of this issue is both reasonable
and narrowly limited to the situation presented in this case. It is
true that the last sentence of Section 7(k) affords the parties an
opportunity for "an additional hearing in accordance with the
procedures established for ratemaking by the Commission pursuant to
the Federal Power Act." But as the court of appeals observed (Pet.
App. A19), Section 7(k) also requires FERC to review BPA's rates
"based upon the record of proceedings established under subsection (i)
(codified at 16 U.S.C. 839e(i)) of this section." And the court of
appeals is required to determine whether FERC's decisions are
"supported by substantial evidence in the rulemaking record required
by section 839e(i) of this title considered as a whole." 16 U.S.C.
839f(e)(2). The record required by Section 839e(i) is the record
compiled at an evidentiary hearing before BPA. /7/ Moreover, as this
Court noted in construing analogous provisions of Section 5 of the
Flood Control Act of 1944, 16 U.S.C. 825s, FERC views its role in
reviewing hydroelectric rates established by federally-owned projects
as "'in the nature of an appellate body.' * * * In exercising that
appellate function, FERC relies on the record before it, remanding for
supplementation if necessary." United States v. City of Fulton, 475
U.S. 657, 663 (1986) (quoting 45 Fed. Reg. 79,545, 79,547 (1980)).
/8/ In view of the other provisions of the statute and the appellate
nature of FERC's review, the court of appeals reasonably concluded
that the additional hearing before FERC afforded by Section 7(k) may
not be an evidentiary hearing for the purpose of supplementing the
record.
Finally, this is the first case to come before FERC (and,
consequently, the court of appeals) under Section 7(k). See Pet. App.
C2. Moreover, the Ninth Circuit's decision is narrowly confined to
the circumstances of the case. In deciding that FERC "may not hold an
evidentiary hearing to supplement a record it thinks is inadequate,"
the court expressly left open the possibility that an evidentiary
hearing could be held "under other circumstances." Pet. App. A23.
Because the hearing question may arise in a variety of factual and
procedural contexts in future cases, further review in this case would
be premature. /9/
2. Contrary to petitioner's contentions (Pet. 13-18), the court of
appeals correctly held that FERC's confirmation of the NF-1 and NF-2
rates is supported by substantial evidence in the record. None of the
fact-specific issues raised by petitioner warrants review by this
Court. /10/
Petitioner renews its argument (Pet. 14-15) that BPA may not charge
its nonfirm customers more than the incremental cost of the energy
they consume, and consequently is prohibited from designing rates that
reflect nonfirm customers' unweighted proportional share of BPA's full
costs. Petitioner disparages, as "fallac(ious)," (Pet. 14) the
findings of FERC, upheld by the court of appeals, that BPA operates
its system to maximize the production of useful energy and that BPA
cannot feasibly determine the incremental cost of its output. But
petitioner offers no persuasive reason for this Court to reexamine
those fact-bound determinations. Contrary to petitioner's suggestion,
the fact that BPA decides whether to invest in additional generating
capacity on the basis of anticipated demand in the Pacific Northwest
region does not imply that BPA operates existing facilities solely for
the benefit of customers in that region. And while petitioner asserts
the BPA is no less able to determine its incremental costs than other
utilities, it does not dispute FERC's findings that the Columbia River
System is unique because of its heavy reliance on hydropower and its
substantial storage capacity. Pet. App. C6.
Contrary to petitioner's assertion (Pet. 15), it is not "beside the
point" that FERC found that BPA's California customers benefit from
BPA's entire system. The fact that California customers benefit from
BPA's entire system affords a basis for allocating a proportional
share of the system's full costs to those customers. Pet. App. A25.
Moreover, there is no basis for petitioner's assertion (Pet. 16-17)
that FERC "ignored its responsibilities" by failing to determine
whether BPA's rates encouraged the most widespread use of nonfirm
energy at the lowest possible price. FERC expressly found that BPA's
rates encouraged "widespread use" and the lowest possible rates
consistent with sound business principles. Pet. App. C35-C36, D6-D7.
The court of appeals concluded that the rates were consistent with the
"widespread use" standard. Pet. App. A33. Petitioner errs in
suggesting (Pet. 17-18) that the rates approved by FERC were
inconsistent with sound business principles. The nonfirm energy
revenues collected under the rates at issue here contributed to BPA's
overall cost recovery. All BPA revenues are statutorily required to
be used to pay BPA's costs and scheduled amortization. See 16 U.S.C.
839e (a)(1). It is thus incorrect for petitioner to suggest (Pet. 17)
that revenues from nonfirm service serve only to reduce rates for firm
service. FERC's administrative law judge correctly rejected this
argument, recognizing that "the nonfirm customers should pay those
costs which in essence have been allocated to them." 29 Fed. Energy
Reg. Comm'n Rep. (CCH) Paragraph 63,039, at 65,083.
Finally, there is no merit to petitioner's contention that BPA's
costs associated with the Washington Public Power Supply System
(WPPSS) nuclear plants should not have been charged to BPA's nonfirm
customers. See Pet. 18. According to petitioner, the costs
associated with these plants should not have been included in BPA's
rates because the WPPSS plants did not produce energy during the
period at issue here. But as the court of appeals observed (Pet. App.
A28), if BPA were required to pay its WPPSS obligations but prevented
from charging ratepayers for them until the WPPSS plants produced
energy, funds to repay federal investment in the Columbia River System
would have to be diverted, contrary to the purposes of Section 7(k).
Thus, inclusion of WPPSS costs was permissible to meet BPA's
contractual obligations to pay for purchased power on a current basis
and to amortize federal investment within a reasonable time. Ibid.
CONCLUSION
The petition for a writ of certiorari should be denied.
Respectfully submitted.
KENNETH W. STARR
Solicitor General
WILLIAM S. SCHERMAN
General Counsel
JOSEPH S. DAVIES
Deputy Solicitor
HANFORD O'HARA
Attorney Federal Energy Regulatory Commission
HARVARD P. SPIGAL
General Counsel
MARYBETH VAN BUREN
Attorney
MARYANN ARMBRUST
Attorney Bonneville Power Administration
DECEMBER 1990
/1/ "Firm power" is energy that BPA expects to produce under
predictable streamflow conditions. "Nonfirm power" is energy in
excess of firm power. Aluminum Co. of America v. Central Lincoln
Peoples' Utility District, 467 U.S. 380, 383 (1984).
/2/ Section 7(a) of the Regional Act provides in pertinent part
that BPA's rates
shall be established and, as appropriate, revised to recover, in
accordance with sound business principles, the costs associated
with the acquisition, conservation, and transmission of electric
power, including the amortization of the Federal investment in
the Federal Columbia River Power System * * * over a reasonable
period of years and the other costs and expenses incurred by the
Administrator pursuant to this chapter and other provisions of
law.
16 U.S.C. 839e(a)(1).
/3/ Section 7(k) of the Regional Act provides in pertinent part:
Notwithstanding any other provision of this chapter, all
rates or rate schedules for the sale of nonfirm electric power
within the United States, but outside the region, shall be
established * * * in accordance with the procedures of
subsection (i) of this section. * * * (S)uch rates or rate
schedules shall become effective after review by the Federal
Energy Regulatory Commission for conformance with the
requirements of such Acts and after approval thereof by the
Commission. Such review shall be based on the record of
proceedings established under subsection (i) of this section.
The parties to such proceedings under subsection (i) of this
section shall be afforded an opportunity by the Commission for
an additional hearing in accordance with the procedures
established for ratemaking by the Commission pursuant to the
Federal Power Act.
16 U.S.C. 839e(k).
/4/ As summarized by FERC, those statutes require BPA to design
rates (1) "having regard to the recovery of the cost of generation and
transmission of such electric energy"; (2) "so as to encourage the
most widespread use of BPA power"; (3) "to provide the lowest
possible rates to consumers consistent with sound business
principles"; and (4) "in a manner which protects the interests of the
United States in amortizing its investments in the projects within a
reasonable period." Pet. App. C2-C3.
/5/ There is no basis for petitioner's suggestion (Pet. 8) that the
NF-1 and NF-2 rates made BPA an uneconomic source of supply for
California customers. On the contrary, the court of appeals noted
that California utilities saved some $1.5 billion by purchasing power
from BPA at the NF-1 and NF-2 rates. Pet. App. A30 n.14. BPA, on the
other hand, realized only $270 million in NF-1 and NF-2 revenues.
During the period that the rates were in effect, moreover, BPA's
revenue shortfalls exceeded $680 million. Ibid.
/6/ FERC's decision is reprinted as an appendix to this brief.
(See App., infra, 13a-14a).
/7/ Petitioner contends (Pet. 10) that review "(b)ased on" the
record does not mean review "limited to" the record. But it is
difficult to see how a decision that relies on facts not in the BPA
record could be "based on" that record.
/8/ Because FERC may conduct a non-evidentiary hearing, and may
also remand to BPA to supplement the record if necessary, there is no
basis for petitioner's assertion (Pet. 12-13) that California
customers will be denied the opportunity for an impartial hearing.
/9/ Respondent California Energy Commission (CEC) contends that the
court of appeals, having determined that FERC lacked authority to
conduct an evidentiary hearing, was required to remand the case to
FERC rather than affirming its decision. CEC Br. 9 (citing SEC v.
Chenery Corp., 332 U.S. 194, 196 (1947)). Because this contention is
not presented in the petition for certiorari, or fairly included in
the questions presented, it should not be considered by this Court.
See Supreme Court Rule 14.1(a). We note that respondent CEC has not
filed a cross-petition for a writ of certiorari. See Supreme Court
Rule 12.3. In any event, Chenery held that a court may not affirm the
decision of an administrative agency on a ground not asserted by the
agency. Here, the court of appeals did not affirm on a ground not
asserted by FERC, but rather affirmed FERC's findings and conclusions
on the basis of substantial evidence in the BPA record. See 16 U.S.C.
839f(e)(2). Even if the Chenery doctrine were applicable here, it
would require a remand only if there were a significant possibility
that, but for the error, the agency would in fact have reached a
different result. NLRB v. Wyman-Gordon Co., 394 U.S. 759, 766 n.6
(1969) (plurality opinion). If FERC had determined at the outset that
it could not hold an evidentiary hearing, it presumably would have
directed BPA to receive additional evidence. There is no reason to
think that additional evidence presented to BPA would have differed
from the evidence presented to FERC, or that FERC would have reached a
different decision on the merits.
/10/ Respondent CEC focuses much of its attention on BPA's policy
for allocating excess transmission capacity -- a policy that it
concedes is "not before this Court." CEC. Br. 4.
APPENDIX